Front Matter Page
2006 International Monetary Fund
March 2006
IMF Country Report No. 06/99
Papua New Guinea: 2005 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Papua New Guinea
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2005 Article IV consultation with Papua New Guinea, the following documents have been released and are included in this package:
the staff report for the 2005 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on October 12, 2005, with the officials of Papua New Guinea on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 25, 2006. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its February 13, 2006 discussion of the staff report that concluded the Article IV consultation.
a statement by the Executive Director for Papua New Guinea.
The document listed below has been or will be separately released.
Selected Issues Paper and Statistical Appendix
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org • Internet: http://www.imf.org
Price: $15.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
PAPUA NEW GUINEA
Staff Report for the 2005 Article IV Consultation
Prepared by the Asia and Pacific Department
(In consultation with other departments)
Approved by Steven Dunaway and Juha Kähkönen
January 25, 2006
A staff team visited Papua New Guinea September 28–October 12 and met with the Deputy Prime Minister, Ministerial Economic Committee, Governor of the Central Bank, other senior officials, and representatives of the private sector, donor community, and civil society.
The staff team included Ms. Creane (head), Messrs. Marciniak and Palomba (all APD), and Ms. Medina-Cas (ICM), and was assisted by Mr. Holloway (Reserve Bank of Australia) and Mr. Faal (Resident Representative). Mr. Murray, Alternate Executive Director, also participated.
The last Article IV consultation was concluded on June 2, 2004, and Directors’ comments may be found at http://www.imf.org/external/np/sec/pn/2004/pn04125.htm.
Papua New Guinea has accepted the obligations under Article VIII, Sections 2(a), 3, and 4, and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.
The authorities indicated their intention to publish the staff report and accompanying documents, as in the past.
Macroeconomic data in Papua New Guinea have improved (Annex V), but further improvement in the quality and timing of national accounts, balance of payments, and government finance data is needed.
Contents
Executive Summary
I. Introduction
II. The Current Economic Setting
III. Policy Discussions: Growth and Structural Reform
A. Medium-Term Outlook: Prospects and Risks
B. Maintaining Macroeconomic and Financial Stability
IV. Staff Appraisal
Boxes
1. Challenges to Growth
2. The Medium-Term Development Strategy
3. Fiscal Reform to Meet Growth Objectives
4. Prospects for the Mining Sector
Tables
1. Selected Economic Indicators, 2001–06
2. Summary of Central Government Operations, 2001–06
3. Summary Accounts of the Banking System, 2001–06
4. Balance of Payments, 2001–06
5. Medium-Term Scenario, 2001–10
6. Indicators of External Vulnerability, 2000–05
7. Millennium Development Goals Progress, 1990–2004
Figures
1. Regional and Global Comparators
2. Regional and Global Comparators
3. Domestic Economic Indicators, 2000–2005
4. External Economic Indicators, 2000–2005
Annexes
I. Fund Relations
II. Relations with the Pacific Financial Technical Assistance Centre
III. Relations with the World Bank Group
IV. Relations with the Asian Development Bank
V. Statistical Issues
VI. Public and External Debt Sustainability
Executive Summary
Background
The economy continues to perform well as the recovery maintains its momentum and the authorities adhere to disciplined fiscal and monetary policies. The central government budget was estimated to be once more in surplus in 2005, as mining and petroleum revenue remain strong and overall expenditure is kept in check, resulting in a further reduction in public sector debt.
Monetary policy has achieved a favorable combination of relatively low interest rates and inflation. In response to these conditions, as well as to the more stable political environment, credit to the private sector has picked up for the first time in four years. International reserves are strong and the kina remains broadly stable.
Mining and gas prospects have improved, but the overall medium-term outlook remains vulnerable. Structural problems that continue to discourage private activity need to be addressed, including improving governance, strengthening law and order, upgrading infrastructure, and simplifying investment regulations.
Key Issues and Policy Discussions
The staff supports the authorities’ medium-term development strategy, which aims to maintain the current stable macroeconomic environment while moving the economy to a higher sustainable growth path and reducing poverty. The risks remain substantial, however, including the possibility of increasing spending pressures and slowing momentum for reform ahead of the 2007 parliamentary elections.
The authorities’ medium-term fiscal strategy of budget balance and progressively reducing public debt relative to GDP is appropriate and feasible. To achieve these objectives and safeguard progress to date, further reform is needed including extending expenditure controls more broadly, reducing the wage bill, and improving tax administration. These steps would also make room for the increased social and capital expenditure planned to address development needs.
On monetary policy, the staff endorsed the central bank’s continuing commitment to maintaining inflation at a low level, along with the retention of the flexible exchange rate regime.
Further structural reforms are key to higher private activity, greater job creation, and reduced poverty, the mission and the authorities agreed. The mission pressed for more rapid action on steps needed to attract private investment.
Front Matter Page
Public Information Notice (PIN) No. 6/20
FOR IMMEDIATE RELEASE
February 24, 2006
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
